Research On The Financing Pattern Of Local Government In China

The Tax Sharing System was carried out in1994, since then the gap between financial revenue of local government and financing demand from local economic development became wider. Therefore, the financing problem of local government had attracted constant attention. In1992, Shanghai City Government started Shanghai Chengtou Corporation, which was soon duplicated by many other local governments. Under this circumstance, local financing platform boarded the stage of history. In2008, financial crisis severely hit global economy, Chinese government enacted4-trillion economy stimulation policy, which deeply influenced Chinese economy. Economic stimulation, combined with pressure of wider financing gap, made it pretty urgent for local governments to raise money. During this period, bank loans and city investment bond grew quickly, together with more local financing platforms. All these indicate that local financing has become an important issue rooted in current Chinese economy.Based on the Public Goods Theory and Fiscal Decentralization Theory, this article tries to study financing pattern of Chinese local government through history development and current situation. Since our country started "assign-change-loan" experiment in1979, many local governments went through several stages of exploration and practice, looking for new financing channels under restrictions from Budget Law. Right now the financing channel consist of using carrier of financing platform and raising capital through bank loans, bond issuance. Besides, exploration of self-bond-issuance has started. Six provinces are now experimenting subdivision bond issuance, but both scale and social influence are relatively small. In.this article, we specifically choose typical districts like Shanghai as samples to study the current situation of local government financing.Major financing patterns used by developed countries are discussed in this article in order to draw reference for our country. Despite of different detailed practices, all these countries have well-designed system, including complete regulation and legal system. Managed by public finance, private departments are absorbed in the construction of infrastructure investments, which improve efficiency of investment operation.Under current financing mechanism, local governments raise money to make up the shortage of construction fund, which accelerates development of local public facilities. However, problems cannot be ignored. First of all, potential risks are hard to control as financing platform is lack of standardization. And it is unsustainable simply relying on land grand fee. Platform financing should be regulated from three dimensions, which include laws, operation process and supervision system. At the same time, it is necessary to put more efforts into local government self-bond-issuance and to establish standard regulation towards local bond issuance. It is not necessary for government to construct infrastructure alone. Cooperation between public and private departments can not only solve financing problem but also increase operating efficiency, this way new financing channel can be offered to private capital. In short, efforts should be put into utilizing and standardizing platform financing companies in short-term. In the long-term, more effort should be put into municipal bond issuance. Meanwhile, complete regulation and law system should be built to support long-term development of PPP mode.